Global markets mixed as US Treasury yields hit multi-year highs

Global equity markets traded mixed on Tuesday as US Treasury yields surged to multi-decade highs, with investors positioning for Wednesday's gross domestic product and core Personal Consumption Expenditures data expected to shape Federal Reserve policy.

US bond yields spike on AI spending optimism

The US 10-year Treasury yield touched 5.3% on Tuesday, its highest level since 2007, before settling at 5.24% on Wednesday as markets priced in resilient economic growth. The 30-year yield climbed to 5.62%, a peak not seen since 2002, while the two-year rate reached 4.97%, its highest since May 2024.

Investors have driven borrowing costs upward on expectations that artificial intelligence spending will accelerate economic expansion, forcing the Federal Reserve to maintain restrictive policy for longer. Money markets are now pricing in multiple rate hikes through year-end as concerns mount over persistent inflation, government spending levels, and corporate debt issuance to finance AI investments.

Fed officials warn on persistent inflation

Fed board member Michael Barr stated that risks to achieving the inflation target have increased while labor market risks have eased, urging additional policy adjustments to balance employment and price stability. New York Fed President John Williams told reporters there was no sense of urgency following this month’s policy decision, while Chicago Fed President Austan Goolsbee warned of the danger of inflation remaining above the 2% target for five and a half years.

Central banks globally may face renewed tightening pressure amid rising oil prices, which have intensified selling pressure in fixed-income markets. The elevated yields reflect growing confidence that the US economy will avoid recession despite aggressive monetary policy.

Oil rises as Trump denies Iran sanction relief

November-delivery Brent crude oil rose 0.5% to $103.1 per barrel after US President Donald Trump denied reports suggesting he would ease sanctions on Iran. Mohsen Rezaei, secretary of the Iranian Supreme National Security Council, said Trump has found himself in a "dilemma" in which he can "neither negotiate nor fight" during discussions with Azerbaijan's deputy prime minister in Tehran.

Trump hosted senior executives from Meta, Alphabet, Microsoft, Nvidia, Tesla, AMD, Anthropic and OpenAI at the White House, calling the meeting productive as his administration courts technology sector investment. The US Dollar Index traded just above its previous close at 101.5, while gold slipped 0.1% to $4,180 per ounce on Wednesday.

Global equities trade mixed

The New York Stock Exchange closed lower on Tuesday as rising yields weighed on equities, with the Dow Jones Industrial Average falling 0.26%, the S&P 500 declining 0.17%, and the Nasdaq dropping 0.09%. American indexes opened Wednesday on a positive note despite the Conference Board’s consumer confidence index falling to 81.9 and JOLTS job openings dropping to 7.079 million in August, both below analyst estimates.

European markets traded mixed amid geopolitical tensions and expectations of new tax hikes in the French budget, with Germany's DAX 40 rising 0.1% and Italy's FTSE MIB 30 gaining 0.09%, while France's CAC 40 dropped 0.53% and the UK's FTSE 100 fell 0.45%. The eurozone’s economic confidence slipped 0.5 points to 97.9 in September as consumer confidence declined to minus 16.5, while Germany’s public debt reached €2.7 trillion during the second quarter.

EU Energy and Housing Commissioner Dan Jorgensen said the bloc paid more than €100 billion in additional costs for the same volume of oil and natural gas this year, emphasizing the need to reduce fossil fuel import dependence. The euro fell to 1.1312 against the dollar, its lowest level since May 2025, as the People's Bank of China cut its one-year lending rate for policy banks by 25 basis points to support the slowing economy.

China’s manufacturing PMI rose from 49.9 to 50.1 in September, returning to expansion territory, while Japan’s retail sales dropped 1.2% month-on-month in August. The Nikkei 225 rose 2.1% and China's Shanghai Composite climbed 0.1%, while South Korea’s Kospi fell 0.2% and Hong Kong's Hang Seng traded flat amid weak domestic demand and prolonged stagnation in Chinese real estate.